Nuclear Ruin

Town Hall Stakeholders Will Bleed RWE Dry

RWE Brown coal plant. Source Horst Ossinge/ DPA
RWE is losing steam.
  • Why it matters

    Why it matters

    While Germany’s largest energy provider E.ON has generated a lot of criticism for its decision to restructure and focus on renewable energy, other huge energy concerns are being run into the ground by government stakeholders, who are demanding their dividend pay-outs no matter what.

  • Facts

    Facts

    • Germany’s largest utility E.ON said this month that it would restructure the company, splitting it into two companies, one in renewables and one in coal, oil and nuclear.
    • RWE, Germany’s second-largest utility, reported an annual net loss in 2014, for the first time since World War II.
    • Eighty-six municipalities have stakes in RWE. The company’s capital has shrunk by more than €5 billion since 2012.
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    Audio

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There was a huge outcry in Berlin when Germany’s biggest utility company, E.ON, announced it would be spinning off its classic energy business, i.e. everything to do with coal and nuclear power, in order to concentrate on renewable energy forms in future.

Leading the chorus of outrage was former North Rhine-Westphalia state environment minister Bärbel Höhn of the Green party: “I fear that E.ON is creating a ‘bad bank’ for its seven nuclear power stations, which has to be rescued by taxpayers.”

Her party colleague, ex-federal environment minister Jürgen Trittin, said, “The federal government has been criminally negligent in not making sure that the responsibility of nuclear power plant operators cannot be arbitrarily reduced by outsourcing.”

Theirs are not the only critical voices. E.ON’s spin-off plans tap into two triggers of distrust, deeply anchored in the German soul: suspicion of nuclear power and of private-sector companies.

It doesn’t matter if RWE earns money or not – as long as the shareholders get a fat dividend.

There is no rational explanation for the protest anyway.

For one thing, governments have substantial stakes in two other utility companies – and in comparison to them E.ON’s actions are exemplary. For example, E.ON has ensured that its spun-off nuclear business will be completely debt-free, something that testifies to its strong sense of responsibility.

It is a very different picture when the state operates nuclear power plants. Just four years ago, the state of Baden-Württemberg, of which Stuttgart is the capital, bought back a 45 percent stake of the nuclear power company EnBW – and the price of the controversial deal at €780 million ($965.6 million) was too high, according to a report of the public prosecutor’s office.

The amateurish and hastily-done deal was presumably to position the then-state premier more favorably in an election campaign. Burnishing their own image is clearly more important to politicians than dealing responsibly with nuclear power.

As for RWE, 86 municipalities have shares in the company. The municipalities’ 24 percent stake assures them a big say at every stockholders’ meeting. They are bleeding RWE dry, and their motto appears to be that it doesn’t matter if the company earns money or not – as long as the shareholders get a fat dividend.

That RWE, as a victim of political machinations, will one day need money from the taxpayer is a much more probable scenario than the same thing happening to E.ON.

For example, the company ended last year with net losses of €2.8 billion. But the stakeholders still insisted on their dividend.

RWE reduced the payment by half to €1 per share, but that still amounted to a total payout of €615 million – a lot of money to just give away. Above all, it is money that the company does not have. RWE’s capital has shrunk by more than €5 billion since 2012.

This year the ravenous major shareholders got their way again: RWE has committed to pay a dividend of €1 a share for 2014. In the coming years too, the size of these charity payments is also to be set in stone, and the municipalities have already let it be known that anything less than €1 would be unacceptable.

So it could easily be the case that the company continues to make losses in the coming years or generates just small profits and still pays dividends to the municipalities. Therefore, the utility will continue to lose capital – and at the same time have no way of pushing ahead with the urgently needed conversion to renewable energy forms.

To put it very clearly: Governments, here in the form of municipalities, pursuing only their own interests are ruining a nuclear-power company. It is already a “bad bank.” That RWE, as a victim of political machinations, will one day need money from the taxpayer is a much more probable scenario than the same thing happening to E.ON.

And where is the outcry reverberating throughout the republic? After all, there’s nothing new about the behavior of the municipalities. And where is the draft law to prevent such an endangered company being bled dry?  The above-mentioned ladies and gentlemen are quick to pounce if there’s any regulating, prohibiting or patronizing to be done when private-sector companies are involved. If politicians are monitoring companies themselves, they like to keep a low profile.

 

To contact the author: reuter@handelsblatt.com.

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